Euro inflation was reported on Wednesday at 0.5%, as many investors and analysts begin to worry that deflation may in fact begin to become an issue for the euro region and the wider EA region, negative annual rates were observed in Bulgaria (-2.0%), Greece (-1.5%), Cyprus (-0.9%), Portugal and Sweden (both -0.4%), Spain and Slovakia (both -0.2%) and Croatia (-0.1%).

From the UK we received the latest data on the state of the jobs market and on the face if it the data was extremely good, with the headline rate falling to under 7%. This was previously the level at which the current BoE governor had stated that the BoE’s MPC would consider raising the UK’s interest rate from the 0.5% where it has stayed for a record period of time.

In other interest rate news from North America Canada’s central bank announced that they had decided to keep what’s termed their overnight rate at 1% as the core inflation figure is expected to remain at 2%. And from the USA we learned that industrial production rose more than expected. Output at factories, mines and utilities climbed 0.7 percent after a revised 1.2 percent increase the prior month.

Bank of Canada maintains overnight rate target at 1 per cent

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. Inflation in Canada remains low. Core inflation is expected to stay well below 2 per cent this year due to the effects of economic slack and heightened retail competition, and these effects will persist until early 2016. However, higher consumer energy prices and the lower Canadian dollar will exert temporary upward pressure on total CPI inflation, pushing it closer to the 2 per cent target in the coming quarters.

Industrial Production in U.S. Rose More Than Forecast in March

Industrial production rose more than forecast in March after a February gain that was twice as big as previously estimated, indicating U.S. factories recovered after a weather-depressed start to the year. Output at factories, mines and utilities climbed 0.7 percent after a revised 1.2 percent increase the prior month, figures from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.5 percent rise. Manufacturing, which makes up 75 percent of total production, grew 0.5 percent after surging 1.4 percent. The figures follow recent data showing stronger retail sales.

UK Labour Market Statistics, April 2014

Latest estimates for December 2013 to February 2014 show that employment continued to increase, unemployment continued to fall, as did the number of economically inactive people aged from 16 to 64. These changes continue the general direction of movement over the past two years. At 2.24 million for December 2013 to February 2014, unemployment was 77,000 lower than for September to November 2013 and 320,000 lower than a year earlier. The unemployment rate was 6.9% of the labour force (those unemployed plus those employed) for December 2013 to February 2014, down from 7.1% for September to November 2013 and from 7.9% for a year earlier.

Euro area annual inflation down to 0.5%

Euro area annual inflation was 0.5% in March 2014, down from 0.7% in February. A year earlier the rate was 1.7%. Monthly inflation was 0.9% in March 2014. European Union annual inflation was 0.6% in March 2014, down from 0.8% in February. A year earlier the rate was 1.9%. Monthly inflation was 0.7% in March 2014. These figures come from Eurostat, the statistical office of the European Union. In March 2014, negative annual rates were observed in Bulgaria (-2.0%), Greece (-1.5%), Cyprus (-0.9%), Portugal and Sweden (both -0.4%), Spain and Slovakia (both -0.2%) and Croatia (-0.1%).

Market overview at 10:00 PM UK time

The DJIA closed up 0.86%, the SPX was up 0.87%, the NASDAQ closed up 1.04%. Euro STOXX closed up 1.54%, CAC up 1.39%, DAX up 1.57% and the UK FTSE up 0.65%.

The DJIA equity index future was up 0.74% at the time of writing – 8:50 PM UK time April 16th, SPX future up 0.69%, NASDAQ equity index future is up 0.68%. Euro STOXX future is up 1.78%, DAX future is up 1.82%, CAC future is up 1.59%, FTSE future is up 0.94%.

NYMEX WTI oil was down 0.01% on the day at $103.74 per barrel NYMEX, nat gas was down 0.74% at $4.54 per therm. COMEX gold was up 0.19% on the day at $1302.80 per ounce, with silver up 0.72% at $19.63 per ounce.

Forex focus

The yen depreciated 0.3 percent to 102.27 per dollar mid-afternoon New York time. It fell as much as 0.4 percent, the biggest intraday decline since April 1st. Japan’s currency dropped 0.3 percent to 141.27 per euro, while the dollar was little changed at $1.3815 versus the common currency after weakening 0.3 percent earlier.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed at 1,010.05 after falling from 1,010.62, the highest level since April 8th.

The yen dropped the most in more than two weeks against the dollar as risk appetite swelled amid reports that showed U.S. industrial production rose and China’s economic growth slowed less than forecast, damping haven demand.

The Canadian dollar dropped as the Bank of Canada held its benchmark interest rate at 1 percent, where it’s been since 2010, and remained neutral on the direction of its next move. The currency weakened 0.4 percent to C$1.1018 per U.S. dollar.

Canada’s currency was the biggest loser over the past six months among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, tumbling 7.2 percent. The euro gained 2.1 percent, while the dollar declined 0.3 percent. The yen was the second-worst performer, dropping 4 percent.

The pound advanced 0.4 percent to $1.6796 and reached $1.6818. It climbed to $1.6823 on Feb. 17th, the highest level since November 2009. Sterling strengthened 0.4 percent to 82.26 pence per euro. The pound approached a four-year high versus the dollar as the jobless rate dropped below the 7 percent threshold that Bank of England Governor Mark Carney set as an initial guide for considering a boost in interest rates.

Bonds briefing

Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 2.64 percent mid-afternoon New York time. The price of the 2.75 percent note due in February 2024 was 100 31/32. The yield reached 2.59 percent yesterday, the least since March 3rd.

Five-year note yields rose three basis points to 1.65 percent. The 30-year yield dropped one basis point to 3.45 percent after falling to 3.43 percent yesterday, the lowest level since July 3rd.

The gap between five-year notes and 30-year bonds, known as the yield curve, narrowed to 1.79 percentage points, the least since March 31st. Treasury notes fell as Federal Reserve Chair Janet Yellen said the central bank has a “continuing commitment” to support the recovery even as policy makers see full employment by late 2016.

Fundamental policy events and high impact news events for April 17th

Thursday witnesses the BOJ governor Kuroda speaking; Australia publishes the latest NAB business confidence survey. German PPI is published, predicted to come in at 0.1%. Europe’s current account balance is expected in at €22.3 billion. CPI from Canada is anticipated to be at a reading of 0.4%, unemployment claims are expected in at 316K in the USA. The Philly Fed manufacturing index is expected to deliver a reading of 9.6.